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Trends in Fashion & Finance 07.27.2016

Just like baseball players, successful investors work hard on their craft, make the best choices that they can with the information that they have, and they hope that their hard work and thoughtful choices pay off in the long run.

Money Ball

My favorite sport is baseball. There is nothing better than sitting within the Friendly Confines (Wrigley Field,) and spending an afternoon in the sun with my boys and watching the Cubs do their thing. Last week, the four of us traveled to San Diego to watch the annual All Star game. This year, seven members of the Cubs were invited to participate as All Stars!  As I was sitting in beautiful Petco Park, rooting for the magical moments, and dreading the unexpected, I realized there are so many similarities between baseball and money. And a blog topic was born…

Novice and expert investors alike – everyone who invests their hard-earned money feels the pressure to perform from time to time. Investing – like a big win at Wrigley Field – is never a sure thing. But, in both scenarios, the best practices are the same. Winners work hard on their craft, make the best choices that they can with the information that they have, and they hope that their hard work and thoughtful choices pay off in the long run.

  • 1

    Averages Matter

    This year’s Home Run Derby’s champion is Giancarlo Stanton of the Miami Marlins. He had 61 home runs at the derby and set records – he’s a monster!  Just like a hot stock that is performing better then you could ever have expected, smart investors learn to expect a cold spell, too. And, if that happens to Stanton, his Coach and teammates will stick by him, while taking steps to rectify whatever is hampering his game. It wouldn’t be wise to cut ties with a player the second the going gets tough. They’ve invested a lot of time and resources in him. Instead, they will stay the course. That’s what I tell my investors too. Keep a close eye on the investment – believe in the power of averages – and stay the course until the facts out prove the theory.

  • 2

    Diversify

    A winning baseball team can be compared to a diversified portfolio.  For example, my favorite team, the Cubs, had a strong start to the 2016 season. In fact, they were well ahead of the others in the National Division.  Part way through May and through June, they hit a losing streak. It was disappointing. But it happens. Teams get tired from travel. Often, their best player experiences injuries. There are uncontrollable negative forces in everything but if your team – or portfolio – has a little bit of everything – it will be much easier to right the ship in the face of adversity. We’ve hit a few bumps in the financial road this summer too. Brexit, oil prices, and concerns over China have kept everyone on their toes. But if the quality of the team (portfolio,) is there – then hang in there and focus on the things that you can control. By the way – the Cubs started winning again in July.

  • 3

    Then again, don’t be afraid to re-evaluate

    While it’s important not to panic or act rashly, it’s also important to make changes when the trends prove to be too strong to ignore. Mid season trades among ball clubs is demonstrative of this fact. For example, take the Cubs and their member Alfonso Soriano. He wasn’t performing very well. The Cubs had paid a lot for him and weren’t seeing the results they expected. He got traded. In short, sometimes you need to make adjustments. Perhaps the investments that worked so well for you in the past, may not fit with your long term goal anymore.

     

  • 4

    Maintain a deep bench

    Baseball clubs are always grooming young guys coming up from the minor leagues, as seasoned players retire or are injured.  You should always be doing the same thing with your portfolio. One of the ways that you can avoid making rash, panicked decisions is to have a handful of “someday” investments that you’re keeping your eye on. When the moment comes when you need your pinch hitter…you’ll know exactly where to go.

     

     

     

    There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

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